Abstract
The current practices in Money, Capital, Foreign Exchange
and Securities markets, based on interest and short selling, stress upon
using hedging instruments for risk management. Nevertheless, there is
disagreement among scholars and researchers regarding permissibility
status of these instruments. Although majority of Islamic economists and
scholars have expressed serious concern on the use of financial engineering
products, a number of scholars insist on their use by the Islamic financial
institutions. The present study aims to evaluate the permissibility status of
derivatives in the light of the main features of Islamic law of contract. It is
found that, while the hedging instruments may carry various advantages for
individual institutions, their usage leads to fragility in the global financial
system and markets owing to involvement of gharar, short selling and
interest. In order to circumvent the Shar¯ı‘ah prohibitions their structures are
extremely complicated that lead to deviance from real economic activity.
Although some Muslim jurisdictions have allowed derivatives, their usage
is not appropriate in the light of set principles for a valid contract, as
envisaged by Shar¯ı‘ah. Muslim countries and scholars need to develop
distinguished instruments for hedging risk in a Shar¯ı‘ah compliant manner.
This study thus provides with an extensive overview of scholarly views
and contemporary practices and offers objective evaluation of derivative
contracts.
Zaheer Anwer, Farrukh Habib. (2019) Re-visiting Current Debate on Shar¯ı‘ah Position of Derivatives, Journal of Islamic Business and Management, Vol ume 9, Issue 1.
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